Wednesday, March 19, 2008

Many young professionals move to cities in search of jobs, leaving parents in their hometown. Once they find a job they usually send a part of their earnings home to help their parents. Outlook Money takes a look at the options one has to send money home and the costs involved. While the channels of sending money home remain the same - banks and post offices - the modes of transfer have increased over the years.

In parents' accountThanks to core banking you can now deposit the money in your parent's account from the city where you are based. Braja Sundar Rath, 34, a Hyderabad-based IT professional, sends money to his parents in Gunupur, Rayagada district, Orissa. Earlier he used to send money through a demand draft (DD).

"Using a DD had its own problems," says Rath.

When the bank branch where his parents have their account got connected to the core banking facility (it allows you to operate your account and use other banking facilities from any branch of the same bank irrespective of the location of your account), he started depositing money in their account directly.

"The money gets credited to the account immediately and at zero cost," says Rath.

Open a joint accountThe problem comes when branches don't have the core banking facility. In such a case you can either open a new account for your parents in a branch that has the facility, or you can open a joint account with one of your parents and give them a debit card to operate it.

You should, however, remember that with a new account the quarterly average balance has to be maintained. In private sector banks this amount can be as high as Rs 10,000. For public sector banks it is around Rs 1,000.

A little help from friendsIf you feel that the cost of maintaining a quarterly average balance is too high or if your parents don't want to operate a new account or the process of depositing money is too time consuming, then you can deposit the money in a friend's account who is based in your hometown.

Alwin Horo, 24, an ITeS professional based in the NCR, tried depositing the money in his parents' account, in Ranchi, from Gurgaon. "I stood in the queue for more than two hours. When my turn came I was told that the time for depositing money in outstation accounts was over," says Horo.

Luckily for Horo he has a Ranchi-based friend who's bank account is connected through core banking. Now, Horo deposits around Rs 6,000 a month in his friend's account for his parents. But do keep in mind that this may increase the friend's tax liability.

Transfer onlineOnline transfers save you the time and effort of visiting a bank branch to deposit money. At present, around 80 financial institutions offer this facility in India. To transfer funds online, you will need to opt for the net banking facility and register yourself for the third-party funds transfer facility.

Through this facility funds can be transferred instantly. The only condition is that the actual time taken to credit the account depends on the time taken by the payee's bank to process the payment.

Further, you can transfer funds from your account to any other branch that offers the facility. Also, any transfer request made on a non-working day also gets presented to the Reserve Bank of India the very next working day. The best part, however, is that this facility is offered free of cost.

Demand draftThis was the good old way of sending money home. This option will still hold good if the branch with which your parents bank is not covered by core banking and you aren't as lucky as Horo. But there are certain disadvantages of going the DD way.

First is the cost. For example, you will have to pay up to Rs 60 to get a DD made of up to Rs 5,000. Some banks do not charge for this facility if you have an account with them.

Second, you have to send the DD through courier or speed post, which is added cost. Also, once the draft is submitted it takes a minimum of three working days for the funds to be transferred. On top of all this you will lose time standing in queues to get the draft made.

Many banks have a dial-a-draft facility where you can call the bank and they will deliver the draft to you after which you can send it to your parents. This option is more expensive than others and you have to use your credit card to avail this facility.

Instant money orderIf you don't have the time to get a DD made or to deposit money in your parents' bank account, do an instant money order (iMO). With iMOs, you can transfer funds instantly to more than 600 post offices across India. You can find the list of the post offices covered at India Post's website www.indiapost.gov.in.

You can transfer Rs 1,000-50,000 from a designated iMO post office. The charges depend on the amount to be transferred. For example, transferring up to Rs 5,000 costs Rs 150 and Rs 300 for amounts between Rs 45,001 and Rs 50,000.

To transfer money you have to fill a "To Remit Payment" (TRP-1) form and submit it with the money. You will get a printed receipt with a computer generated confidential 16-digit iMO number.

Give this number to your parents. Your parents have to give this number at any designated iMO post office counter, fill up and submit a "To Make Payment" (TMP-1) form along with an identification proof.

Payments below Rs 20,000 will be made in cash, and others by cheque. Your parents can also receive the payment in their post office savings account in the same iMO office.

Making the money reach your home

Mode

Time taken 1

Cost

Demand draft

5-10 days

Depends on the value of the DD 2

Deposit in parent's account

Instant

Free

Dial-a-draft

7-10 days

Transaction fee of 1% ofthe draft amount 3

Electronic transfer

Instant

Free

Instant money order

Instant

Rs 150 - 300

Joint

Instant

Min. quarterly balance to bemaintained in the new account

1 Time taken for parents to receive the money

2 For example, to make a draft of up to Rs 5,000, charges could be up to Rs 60

3 The amount of the draft will be billed in the monthly credit card statement. Interest charges will also be levied from the date of transaction to the date of repayment